Do You Have
a "Broken Arrow" Plan?
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By Edward D. Hess,
Distinguished Executive in Residence,
Executive Director - Center for Entrepreneurship and Corporate Growth, and
Adjunct Professor of Management, Goizueta Graduate School of Business
I have talked to many CEOs during the last two months, and the consensus is "it is tough out there" in the business world. The list of CEO worries is long and both local and global:
Depending on the industry and the age of the CEO, they believe that this is the most difficult business environment since either the early 70s, early 80s, or early 90s. In thinking about those conversations, I read where the Cox Family Business Center released a survey which showed that over 35% of family businesses have no strategic plan. What should you do in an environment like this? My answer is the same irrespective of your size and your industry.
- Inability to raise prices
- Consumer confidence
- Inability to grow the top line
- China's low cost of labor
- Rising trade and budget deficits
- Consumer debt
- Rising bankruptcies
- A global recession
- Investor distrust
- Fear of a "Dell" mentality by big competitor - lower prices to capture market share
- Saturated markets and overspent consumers
- Over-valued stock market.
You need to take the time and do some realistic scenario planning for how you will cope if your business deteriorates further this year - that is, if things get worse before they get better. Every business builder and entrepreneur by definition is an optimist. But a wise optimist has a contingency plan on the shelf just in case.
I suggest at a minimum that you and your key managers debate and conclude what steps and actions you would take to insure your survivability if you had to lower prices to maintain your market share or you had to cut costs 10 - 15% in order to stay cash flow positive or neutral.
Your contingency plan should cover:
Business builders need to be in touch with the reality that their customers and suppliers are experiencing. You need to minimize the risk of surprises. In tough economics times, now is the time to attack and build market share. If you are financially strong, attack, attack, attack. Go after the competition. Aggressively go after new customers - make them an offer they cannot refuse.
- A People Plan
What people assets are critical for you to keep? Why? Who can "afford" a salary cut? Who could undertake more responsibility? Who are your "A" players who are keepers? If you had to cut 10% of your work force, what would your severance policy be? How would you treat departing people so as to engender trust, respect and loyalty of those remaining? How would you implement a people "cut"?
- A Key Customer Plan
Who are your most profitable customers? Most loyal? Who must you keep long-term at all costs? What is going on in their business? How can you get closer to them? Who has pressures of their own which will force them to ask you to cut prices? Extend credit? String out paying you?
- A Cost Cutting Plan
How would you cut costs 10% immediately? 15%? Line by line, what expenditures are necessary and what are not necessary for survivability?
- Financial Safety Net Plan
Do you have bank lines which are untapped? Home equity loans? Should you draw them down and put the money in interest-bearing accounts? What sources of cash do you have to live on if you have to defer all of your salary? What are your personal living expenses that can be reduced, deferred, or are not absolutely necessary? Do you have investors who can be an emergency source of cash? Friends or family? What do you own which can be collateral or be sold quickly to raise cash?
- An Exit Plan
What if you have to get a partner or sell your business to keep it from going under? Who are the likely buyers? How do you know? Should you have exploratory preliminary discussions to test the market? If not, when? What are the facts and circumstances and the pros and cons of each likely buyer or partner? How much time does it take to exit?
- A Cash Management Plan
How can you accelerate cash inflows from customers and defer cash outflows to vendors?
Should you give discounts for cash orders? Are your customers stringing you out? What can you do with them?
Look at Dell. In the past few years they used their strength to cut PC prices and gain more market share while they expanded in the server market.
Play to your strengths, and manage the downside. If you do not have financial strength, have a plan if your financially strong competition attacks the market. Stay close to your customers and give them world-class personal service. Show you care often and frequently. Make price irrelevant through caring service.
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